The hedge fund that staged a revolt at Exxon last month is now recruiting an army of mom-and-pop investors for future battles.
WASHINGTON DC, Oct 11 2017 (IPS) - The International Monetary Fund (IMF) and climate change do not often appear in the same headline together. Indeed, environmental issues have been, at most, peripheral to the Fund’s core functions. But now economists inside and outside the IMF are beginning to understand that climate change has significant implications for national and regional economies, and so it’s worth reconsidering the Fund’s role in addressing the climate challenge.
To her credit, Managing Director Christine Lagarde has boldly injected the IMF’s voice into the global debate on policy responses to climate change and has identified a number of roles the Fund can play.
The Fund has conducted valuable work on how carbon emissions can be reduced through market prices that reflect the negative externalities of those emissions. In particular, the Fund has become a leading voice for quantifying and streamlining or eliminating fossil fuel subsidies, as well as for introducing carbon-pricing mechanisms.
What is still missing, however, is a bigger role for the IMF in enabling countries to prepare and manage the potential impacts of climate change. There are three things the Fund could do, building on its current efforts, that would make a big difference:
1. Deepen Research on Macroeconomic and Financial Impacts of Climate Change
In a climate change debate that has become heavily politicized, the Fund’s technical and nonpartisan voice is uniquely valuable. Few questions are as important as understanding the possible effects of a changing climate on the world’s economies, especially the most vulnerable ones.
The Fund has recently started to make important contributions in this area. In a paper published last year, the IMF started to look into the implications of climate change on so-called “small states”. And last week, the Fund devoted for the first time a whole chapter of its flagship World Economic Outlook to the impacts of weather shocks on economic activity.
Building on these foundations, the Fund should focus its research capabilities on a key question, namely whether climate change is having have a “level effect” or a “growth effect” on per capita income. If the former, then climate change will only destroy a given amount of income over time (think of damaged bridges and buildings) but not affect the capacity of the economy itself to grow. If the latter, then climate change is also harming the drivers of growth themselves, such as the productivity and availability of workers, the productivity of agriculture, and the flow of investment. The economy’s growth rate will slow as a result, and losses will compound year after year, leaving an economy significantly worse off than if only level effects applied.
Getting better answers to this question is essential for policymakers making decisions about how much to spend today to avoid damage tomorrow.
2. Formally Incorporate Climate Change Into Policy Dialogue
One of the Fund’s core functions is macroeconomic surveillance. This function brings Fund staff into regular policy dialogues (called Article IV consultations) with financial authorities in virtually every country in the world.
Financial authorities have a key role to play in preparing for climate change, as they are charged with budget planning and managing fiscal and financial risks. The Fund should bring climate risk into the dialogue as a formal part of its consultations, not just with small states, but with a much larger set of vulnerable countries as well, including systemically-significant ones.
This year, in collaboration with the World Bank, the Fund launched the first Climate Change Policy Assessment (CCPA) during the Article IV consultations for the Seychelles. The assessment focused on policy options to reduce vulnerability to climate change; the Seychelle authorities found it to be very useful. More CCPAs are planned – a small handful per year – but this is simply not fast enough given the urgency and gravity of the challenge.
The Fund should formalize CCPAs as a routine part of Article IV consultations for a broad swathe of vulnerable, low-income countries. This will require investing in staff capacity and training, including in the Fund’s Monetary and Capital Markets Department, which can help countries identify how climate risks and opportunities could affect their financial systems. Maximizing synergies with the World Bank on the CCPAs will also be necessary.
3. Treat Expenditures on Climate Resilience as Investments
Countries facing a balance-of-payments crisis often draw on IMF resources and enter into a program relationship with the IMF. One of the trickiest elements when negotiating such a program is how to treat different categories of spending and where to cut to restore fiscal balance. How should the Fund treat expenditures designed to provide financial protection against extreme weather events? These include, for example, deposits into a national reserve fund, premium payments on sovereign insurance against natural disasters, or the costs of issuing catastrophe (“cat”) bonds.
Protecting some of these expenditures from program-mandated cuts is fully appropriate, as they are designed to provide a measure of fiscal protection to the government in the aftermath of an extreme weather event. For instance, the Fund might treat cat bond issuance costs and insurance premiums as investments with potential upside, rather than as expenditures, thereby exempting them from cuts.
Managing Director Lagarde has positioned the IMF as an important and credible voice in the debate about climate change. Now it’s time for the Fund to expand and institutionalize this new role, helping poor and vulnerable countries understand and confront the macroeconomic and financial risks of climate change.
“This article was originally posted at World Resources Institute’s Insights blog”
For the 180th time, Sheldon Whitehouse took to the Senate floor this month to warn of the perils of climate change, blasting the fossil fuel industry, corporate greed and the failure of market capitalism to address global warming.
Each week for years, largely without fail, the junior senator from Rhode Island waxes philosphical about ocean acidification, atmospheric temperature rise, devastated coastal communities, increases in storms, fires and floods. And every week, he urges Congress and the American people to act before it is too late.
But is anyone listening?
"I don't know," the Democrat recently told E&E; News during a sit-down in his office. "After all that effort, I certainly hope and pray it had an impact."
Whitehouse has gained a reputation as a lefty progressive with anti-capitalist undertones who rages against greedy corporate interests and the Koch brothers.
But he said he sees market capitalism as the most effective way to address global warming, much more so than increased regulation, a common Democratic battle cry. And the climate hawk is working to find common ground with those who once appeared to be his enemies.
In the wake of unprecedented extreme weather events such as Hurricanes Harvey, Irma, Jose and Maria, the subject of climate change is back in the spotlight. And the administration's move to kill the Clean Power Plan gives lawmakers more room to act.
In a change from years past, more Republicans are joining Whitehouse and beginning to call for action. Sen. Lindsey Graham (R-S.C.) said last month he would work with Whitehouse on a bipartisan carbon fee bill.
"I'm a Republican. I believe that the greenhouse gas effect is real, that CO2 emissions generated by man is creating our greenhouse gas effect that traps heat and the planet is warming," Graham said during a press conference (Greenwire, Sept. 20).
Even though many activists on the left want caps on emissions, Whitehouse says a carbon fee is much more efficient. "You get much more climate bang for your effort buck," he said.
And while he is not shy to criticize the GOP for what he considers inaction on the global warming issue, he is equally willing to call out fellow Democrats, as well.
"Remember Will Rogers? The 1930s-era comedian who said, 'I'm not a member of any organized political party, I'm a Democrat,'" he said. "No, we've done an absolutely crap job of fighting this fight. We allowed it to become polar bears versus jobs, which is ridiculous on both sides."
There are more jobs in green energy and renewables now than in the fossil fuel industry, he said. "And it's not polar bears that are suffering, it's beaches and fishermen and farmers right here in the United States."
'Capitalism is the solution'
At issue, Whitehouse said, is not capitalism as an economic system, but rather what he sees as a perversion of that system.
"I think market capitalism is the solution to the problem," he said. "The difficulty here is that market capitalism has been twisted by the fossil fuel industry, and they have completely polluted and captured our politics so that the natural course of things has been interfered with."
The "natural course" refers to an inevitable market collapse that often accompanies innovation. Whitehouse said when the economy shifts, for example, from horses to internal combustion engines, there is a "quite precipitous and quite painful" fallout, but it is usually contained within the affected industries.
"In this case, we spin this out too far; while we're waiting for that natural eventual precipitous market collapse [of the fossil fuel industry] to take place, we're also doing all this other damage that will then come back to haunt us, and for which there will be considerable blame," he said.
Sen. Sheldon Whitehouse (D-R.I.) on the Senate floor. C-SPAN
Critics believe the very nature of capitalism works against environmental protection. In her award-winning book "This Changes Everything: Capitalism vs. the Climate," author Naomi Klein argues capitalism necessitates ongoing economic growth.
The ever-growing consumption model requires never-ending resource extraction, she says, thereby exacerbating global warming through continued carbon emissions. Klein, and others on the left, are pushing for a new economic model.
This idea runs counter to Whitehouse's position. He argues market capitalism is not inherently problematic, but rather has been "torqued and polluted and ruined" by the fossil fuel industry.
More specifically, the industry "enjoys" an annual subsidy in the United States of more than a half-trillion dollars a year, according to the International Monetary Fund, he said.
"In theory, under market capitalism, those negative externalities in the amount of $700 billion a year ought to be baked into the price of the product," he said.
In economic theory, a negative externality is the cost that is suffered by a third party as the result of a market transaction.
"The markets work, but when you have negative externalities not in the price, that's an economic failure, an economic dislocation," Whitehouse said. "But because it's so to the benefit of the fossil fuel industry, they've stepped over into the political side and have just beat the hell out of everybody in order to protect that massive subsidy."
Whitehouse said that usually, on the political side, lawmakers would recognize the $700 billion as a negative externality, but Republicans — he thinks — have become indebted to industry donors.
"You can't smoke in airplanes any longer because now we know what secondhand smoke does to children sitting next to you in the airplane," he said. "They won't let us do the equivalent of that for climate change because they make too much money off of the status quo."
For Whitehouse, the fight for climate action is not only a fight for the preservation of the planet, but also for what he sees as core American values.
'Baked into me'
The child of a prominent diplomatic family, Whitehouse said he spent time in places such as Laos and Turkey growing up, and watching his kin make sacrifices for high ideals had an effect.
"I spent my life as the son and grandson of Foreign Service officers, and we were not on the champagne and cocktails diplomatic circuit," he said. "We were in poverty-ridden countries, and we were in countries at war, and what I grew up around were Americans who put themselves and their families in harm's way because they believed in something."
It was evident to him from an early age that something about America was important enough for family and friends to subject their loved ones to malaria, dirty drinking water or poor living conditions.
"They do it because something matters. So that got baked into me pretty hard," he said.
"And if we have let this temple of democracy that men and women fought and bled and died to create and preserve get corrupted by one special interest in a way that will harm the lives of people all around the world and bring the democracy that we cherish into disrepute, shame on us."
Whitehouse first became passionate about climate change through his wife, a marine biologist who shared her findings concerning sea-level rise and ocean acidification in their home-state Narragansett Bay.
"The bay in which my wife did her research on winter flounder has risen nearly 4 degrees medium underwater temperature, and the flounder that she used to study are virtually gone," he said.
When Whitehouse arrived on the Hill in 2007, lawmakers were taking climate change seriously and working to draft a solution, he said. From 2007 to 2009, there were "bipartisan bills coming out of all sorts of places," he said. In 2008, Sen. John McCain (R-Ariz.) ran for president on a climate change platform Whitehouse considered "great."
"And I thought, OK, this is a scientific problem, but government is working on this, we're doing our job," he said. "Then comes 2010, Citizens United decision. Requested and forecasted by the fossil fuel industry from the five Republicans on the Supreme Court and boom, like sprinters at the starting gun, they were off."
Citizens United v. Federal Election Commission is the 2010 landmark Supreme Court case, which lifted restrictions on how much money large corporations can invest in political campaigns.
Since 2010, there has not been a Republican co-sponsor, with Graham as a potential exception, of serious carbon emissions reduction legislation, Whitehouse said.
"The fossil fuel industry took that huge political weaponry that they were given by the five Republicans on the Supreme Court in Citizens United and they turned it on the Republican Party and they crushed dissent, and they made [climate] look like a partisan issue, which it is not," he said.
'Science got me scared'
When a carbon cap-and-trade bill passed the House in 2009 but failed to gain traction in the Democrat-controlled Senate, Whitehouse was furious and began taking on the Senate floor to vent his frustrations with Congress' lack of action.
"The science got me scared, watching the corruption of the government that I love happen in front of my eyes got me mad," he said.
"So at that point, I thought, well, somebody has got to say something, just to let people know that the lights have not gone out here. The only way to do that around here with people as busy as they are is to put yourself on a schedule and tell your office every week, no excuses, no exceptions, I'm going to the floor."
And despite the yearslong quest, Whitehouse is convinced the climate change fight can be won. "I wouldn't rule out a carbon fee," he said. A confluence of action has given him hope.
In addition to Graham's announcement, large oil and gas players have said they support a carbon fee.
"Although they're lying, Exxon, Shell, Chevron, all the big oil companies, pretend to support carbon fee," he said. "So there's significance in their pretense, if they know they've got to at least pretend."
There is building support for a carbon fee in the business community, he said. In fact, more than 1,200 business across the globe, including U.S. companies like General Motors Co., are voluntarily assigning a dollar value to carbon dioxide to reduce greenhouse gas emissions (Greenwire, Sept. 12).
And lastly, Whitehouse cited President Trump himself, who in 2009 signed onto a full-page ad in The New York Times saying climate change science is irrefutable and the consequences will be catastrophic and irreversible (E&E; News PM, Oct. 2).
"So is it a long shot? Yes, but those are all pretty interesting pieces that could come together as this thing develops," Whitehouse said.
"Ultimately, we win. We just hope that we don't win too late."
Twitter: @AriannaSkibell Email: firstname.lastname@example.org
by David Roberts@drvox
Back in the 1990s and 2000s, when Democrats had more power in state governments, 29 states (and DC) passed some form of renewable portfolio standard (RPS), a policy that requires a state’s utilities to get a certain percentage of their power from renewable sources by a certain year.
Standards range from California’s wildly ambitious 50-percent-by-2030 to Ohio’s modest 12.5-percent-by-2026, and everywhere in between.
Though they aren’t as sexy as perpetually-discussed-but-rarely-passed carbon taxes, and they are flawed and insufficient in a number of ways, RPSs have been the quiet workhorses of renewable energy deployment in the US. According to one Lawrence Berkeley Lab report, fully 62 percent of the growth in US non-hydro renewables since 2000 has been undertaken to satisfy RPS requirements.
Consequently, there’s been a great deal of research done about their various costs, benefits, and impacts. One thing that’s been missing, however, is a comprehensive prospective analysis, projecting the total costs and benefits of RPSs going forward.
Happily, such an analysis was just published in the journal Environmental Research Letters.
If you’ve followed previous research literature on RPSs (and who hasn’t?), the top-line results probably won’t surprise you. Spoiler: The benefits of these policies will substantially outweigh the costs, even under conservative assumptions.
Aside from the basic finding, I do think the results can shed light on two important points — one important to the future of the US grid, one important to politics and policymaking in general. And y’all know how I love to make points.
First, though, a quick summary of the results.
RPS benefits will outweigh costs under almost any assumptions
The researchers used various datasets and methods to evaluate RPSs out through 2050, assessing them along three key metrics:
(a) national electric system costs and national and regional retail electricity prices; (b) environmental and health benefits associated with reduced greenhouse gas (GHG) and air pollution emissions and reduced water use; and (c) other impacts related to gross effects on employment and reductions in natural gas prices.
They modeled three scenarios, one with no RPS, one which took into account existing RPS commitments, and a high RE scenario in which RPSs were strengthened.
Under the high RE scenario, renewables are 35 percent of US power by 2030 and 49 percent by 2050.
So how do the costs and benefits balance out? Let’s skip to the end:
In the existing RPS scenario, electricity system costs range from -0.7 percent to 0.8 percent of no RPS system costs (which roughly amounts to plus-or-minus $31 billion).
In other words, depending on assumptions about the price of renewables and natural gas in the future, the direct costs to consumers could range from mild (roughly 1 cent per kwh in the most affected regions) to negative, i.e., a net savings for consumers. RPSs could very well pay for themselves even before externalities are taken into account.
Whereas the upper-bound estimate of existing RPS costs is $31 billion, the lower-bound estimate of air-quality benefits is $48 billion and the lower-bound estimate of climate mitigation benefits is $37 billion.
So: If existing RPSs are maintained through 2050, they will impose, at the very most, $31 billion in costs, and produce, at the very least, $85 billion in benefits. Seems like a pretty good deal.
The high RE scenario, which involves cranking up RPSs even in states that currently don’t have them, entails more pronounced costs (upper bound: $194 billion) but also more pronounced benefits (lower bound: $303 billion in air quality, $132 billion in climate). Still a screaming deal.
There are interesting caveats and methodological details in the paper — it’s always worth remembering how much results like this depend on the assumptions fed into the model about natural gas costs, electricity demand, the future cost of wind and solar, etc. — but let’s get on to my two points.
Point one: anything is better than coal
The bulk of the air-quality benefits in both RPS scenarios — and a substantial portion of total benefits — comes from “reduced SO2 and subsequently reduced particulate sulfate concentrations. Particularly important is the avoided premature mortality primarily associated with reduced chronic exposure to ambient PM2.5.”
Basically, reducing smog and other particulates in the air (by reducing SO2 emissions) produces enormous health benefits.
Guess where most of that SO2 comes from. Yup: coal plants. Most of the SO2 reductions in both RPS scenarios come from coal plants shutting down in the Central and Eastern US.
What this demonstrates, more or less, is that coal is so poisonous that virtually any alternative pencils out, once health effects are internalized. Coal is public health target number one.
It also demonstrates that the regions of the country with the weakest (or no) RPSs stand to benefit most from strengthening them.
And finally, it demonstrates that coal really is a convenient bogey man for renewables. Once coal has been driven from the grid and natural gas is the primary competitor, RE’s advantage on externalities will shrink. It won’t disappear, by any means, but natural gas’s air quality and climate impacts are marginally less ludicrous than coal’s. That will put RE in a somewhat tighter race.
Point two: real policies are better than imaginary policies
The authors make a point of saying that, although RPSs are clearly cost-effective — they generate benefits well in excess of costs — “we do not claim that RPS programs represent the most cost-effective path towards achieving these air quality and climate benefits.”
The standard economist objection is that the most cost-effective way to reduce an externality is to put a price on it. From that perspective, an RPS is just an indirect, inefficient way of putting a price on (some) pollutants.
This critique is irritating and wrong in many ways, but for the purposes of my point here, let’s grant it. Let’s say that pollution taxes have an efficiency advantage over clean energy mandates.
What clean energy mandates lack in efficiency, they make up for with another key quality that pollution taxes lack: They are real.
RPSs might not be the most cost-effective way to improve air quality, reduce carbon emissions, or stimulate the growth of clean-energy industries and jobs ... but they are real, working, doing all three of those things, right now, cost-effectively.
Democratic policies often seem caught between two sets of policy purists — on one side, wonks and economists, preoccupied with theoretical, more cost-effective alternatives; on the other side, activists, preoccupied with theoretical, stronger alternatives. (Yes, I’m still reliving the 2009 Waxman-Markey fight.)
There seems to be, on the left, less of that implacable pushing everywhere at once that you find on the right, less appreciation of half-a-loaf solutions that can be ratcheted up over time with steady effort.
RPSs are the perfect case in point. Everyone I know in energy-nerd world has their own bespoke objection to RPSs: They are too strong, or too weak, they should include this or that other technology, they don’t solve systemic externality issues, they are just a bargaining chip for carbon taxes.
But they exist. They are popular. They are working. Maybe economists could tear their eyes from carbon taxes and activists could tear their eyes from pipelines long enough to give them a few cheers.
Not getting sick and dying from pollution is worth quite a bit, it turns out.
Wind and solar power are subsidized by just about every major country in the world, either directly or indirectly through tax breaks, mandates, and regulations.
The main rationale for these subsidies is that wind and solar produce, to use the economic term of art, “positive externalities” — benefits to society that are not captured in their market price. Specifically, wind and solar power reduce pollution, which reduces sickness, missed work days, and early deaths. Every wind farm or solar field displaces some other form of power generation (usually coal or natural gas) that would have polluted more.
Subsidies for renewables are meant to remedy this market failure, to make the market value of renewables more accurately reflect their total social value.
This raises an obvious question: Are renewable energy subsidies doing the job? That is to say, are they accurately reflecting the size and nature of the positive externalities?
That turns out to be a devilishly difficult question to answer. Quantifying renewable energy’s health and environmental benefits is super, super complicated. Happily, researchers at the Lawrence Berkeley Lab have just produced the most comprehensive attempt to date. It contains all kinds of food for thought, both in its numbers and its uncertainties.
(Quick side note: Just about every country in the world also subsidizes fossil fuels. Globally, fossil fuels receive far more subsidies than renewables, despite the lack of any policy rationale whatsoever for such subsidies. But we’ll put that aside for now.)
Here’s how much wind and solar saved in health and environmental costs
The researchers studied the health and environmental benefits of wind and solar in the US between 2007 (when the market was virtually nothing) and 2015 (after years of explosive market growth).
wind and solar, 2007-2015 (Nature Energy)
Specifically, they examined how much wind and solar reduced emissions of four main pollutants — sulfur dioxide (SO2), nitrogen oxides (NOx), fine particulate matter (PM2.5), and carbon dioxide (CO2) — over that span of years. The goal was to understand not only the size of the health and environmental benefits, but their geographical distribution and how they have changed over time.
To cut to the chase, let’s review the top-line conclusions:
From 2007 to 2015, wind and solar in the US reduced SO2, NOx, and PM2.5 by 1.0, 0.6, and 0.05 million tons respectively;
reduction of those local air pollutants helped avoid 7,000 premature deaths (the central estimate in a range from 3,000 to 12,700);
those avoided deaths, along with other public health impacts, are worth a cumulative $56 billion (the central estimate in a range from $30 to $113 billion);
wind and solar also reduced CO2 emissions, to the tune of $32 billion in avoided climate costs (the central estimate in a range from $5 to $107 billion).
So, if you add up those central estimates, wind and solar saved Americans around $88 billion in health and environmental costs over eight years. Not bad.
That number is worth reflecting on, but first let’s talk a second about how they came up with it.
Uncertainties abound in measuring positive externalities
Tallying up these benefits is difficult for all sorts of reasons.
First, you have to figure out which sources are displaced, when and where, which meant researchers had to build a power system model that covered the country and produced hourly estimates.
Second, you have to figure out just how much of the primary pollutants — SO2, NOx, PM2.5, and CO2 — were avoided by displacing that power generation. To do that, researchers used EPA’s AVoided Emissions and geneRation Tool (AVERT) model. (Don’t ask.)
Third, you have to figure out the avoided impacts, and their value, of the local air pollutants (SO2, NOx, and PM2.5) that were prevented. To do that, researchers used a “suite of air quality, exposure and health impact models” from EPA and elsewhere. (Not all pollutants or impacts were included — impacts from other parts of the power plant lifecycle, like mining, were excluded, for instance. See the paper itself for many more caveats.)
Fourth, you have to figure out the avoided impacts, and their value, of the carbon dioxide emissions that were prevented. To do that, you need to know the “social cost of carbon” (the total quantified benefits of an avoided ton of CO2). Researchers used a wide range of estimates for the SCC.
In all those steps, there are uncertainties and ranges, some having to do with the limitations of models, some having to do with the limitations of our understanding of the impacts of pollution, some having to do with difficult-to-quantify intangibles like the value of a human life.
These uncertainties explain the wide range of estimates involved: premature mortalities range from 3,000 to 12,700; local pollution impacts from $30 to $113 billion; CO2 climate impacts from $5 to $107 billion. (It’s worth saying that there are good reasons to think most SCC estimates are lowballing — certainly $5 billion is ludicrous.)
These ranges reflect the simple fact that different models weigh things differently, from the physiological impacts of pollution to the value of missed work. This is part of what muddies the politics of environmental regulation: Costs are specific and concentrated; benefits are uncertain and diffuse.
Wind and solar benefits vary over time and from place to place
If you dig into the paper, you find that the most interesting data has to do with the variations in benefits across regions and over time.
It’s complex, but in a nutshell, the health and environmental benefits of wind and solar vary depending on what other sources are being displaced, and how much, and when.
For example, fuel shifting (coal to gas) and various pollution regulations have meant that the average pollution of conventional power plants fell over the years of the study. If conventional plants are emitting less, then displacing them avoids less. So on average, early wind and solar displaced more local pollutants per-MWh than later.
It’s slightly different with CO2. The average CO2 emissions of the power sector fell as well, thanks to fuel shifting, but not as fast — not fast enough offset the explosive growth of wind and solar. So the amount of CO2 displacement per-MWh has remained roughly steady.
Here’s what that looks like graphically — these are the benefits over time. CO2 is on the upper left:
displaced pollution (Nature Energy)
Wind and solar’s positive effects on local pollution have, on a per-MWh basis, fallen over time as other power plants have cleaned up somewhat. But their positive effects on CO2 pollution have remained steady. If it isn’t already, CO2 displacement will soon become wind and solar’s most valuable positive externality.
Wind and solar effects also varied widely by region, because some regions have cleaner power sectors than others. In California, wind and solar are mostly displacing natural gas. In the upper Midwest and mid-Atlantic regions, which rely more heavily on coal, wind and solar have greater impact.
Here’s what that looks like graphically. The first two rows show the marginal benefits of wind and solar by region; the bottom two rows show the total benefits by region:
pollution displacement by region (Nature Energy)
A few things jump out here.
First, wind power has had enormous air-quality benefits in the upper Midwest and the mid-Atlantic. Yuge!
Second, poor California is building the shit out of renewable energy, but it’s mostly displacing natural gas, which has relatively low levels of local pollution. That means the state is getting relatively little air-quality benefit from wind and solar — its shift to renewables is mostly benefiting the climate (look at that solar spike at the bottom).
Third, the Southeast, one of the regions that benefits most from every marginal addition of wind and solar (thanks to the prevalence of coal power), has built the least. That’s dumb.
Fourth, I hadn’t realized how big solar was in the mid-Atlantic region! It’s producing almost as much air-quality benefit as wind.
Subsidies are roughly in line with air and climate benefits, but only roughly
In something of a curious coincidence, the central-estimate health and environmental benefits of wind and solar in 2015 — 7.3¢/kWh and 4.0¢/kWh respectively — are “comparable to estimates of total federal and state financial support” for wind and solar.
So for all the various subsidies and tax breaks for wind and solar, we’re getting roughly what we paid for. (If you believe the central estimates. Of course, “central” does not mean “most likely,” so we still don’t really know exactly what we’re getting, but we’ll put that aside too.)
However, while the absolute level of subsidies might match the absolute level of benefits, they do not line up on a granular level. The health and environmental benefits of wind and solar vary widely by time and region, but most policy incentives for wind and solar do not. Federal tax incentives treat all wind and solar projects the same. And when subsidies do vary, as in state-level policy, it’s rarely connected to their varying benefits.
The conclusion the researchers draw from this subsidy mismatch is that “addressing air quality and climate change through policies directly supporting wind and solar is not necessarily the most cost-effective approach.”
That’s true, as far as it goes, though I think there are still plenty of good reasons to support wind and solar. What’s fun, though, is to think about what it might look like if state and federal supports for wind and solar did vary by time and region.
How might that work? Take the same pot of money and instead of flat, capacity-based subsidies, offer time-varying, per-KWh subsidies based the pollution-intensity of the power being displaced. That would be computationally difficult, but not theoretically impossible. (If you want to really nerd out, the Brattle Group proposed something roughly similar for energy markets in a white paper.)
Time- and location-sensitive subsidies would attract wind and solar investment to the regions where it will do the most air-quality and atmospheric good, increasing their impact. And as a bonus, those regions often overlap with regions badly in need of blue collar jobs and regions where the fight against climate change could use a political boost, so it could increase their sociopolitical impact as well.
California wouldn’t like that much. But the upper-Midwest sure would!
A final word on costs and benefits
In this case, as in all such cases, it is somewhat misleading to simply compare total subsidies with total health and environmental benefits. The total amounts are not all that matters. It also matters how costs and benefits are distributed — i.e., equity matters as well.
To put it bluntly: A dollar in federal taxes is not equivalent to a dollar of avoided health and environmental costs. The latter dollar is worth more than the former dollar.
Why is that? Simple: Federal taxes come disproportionately from the wealthy, via our progressive federal income tax, but health and environmental benefits disproportionately help the poor. And as any good economist will tell you, the same dollar is worth more to a poor person than it is to a rich person.
This is something that often gets lost in discussions of environmental regulations. It’s not just that their total benefits almost always exceed their direct costs. It’s that those benefits are uniquely egalitarian and progressive.
In the case of climate change, any reduction in CO2 emissions benefits everyone on Earth (egalitarian), while disproportionately helping the poor, who suffer earliest and most from climate impacts (progressive).
In the case of local air-quality benefits, cleaner air benefits everyone in the region who breathes (egalitarian), while disproportionately helping the poor, who are more likely to live in close proximity to fossil fuel power plants (progressive).
In terms of equity, converting a dollar of wealthy people’s money into a dollar of health for low-income communities seems like a good deal to me. And if you can get multiple dollars of low-income health benefit for every dollar of high-income taxes, well, that’s a no brainer.
Everybody breathes. Any dollar of federal income taxes used to produce a dollar of air and climate benefits is a net gain for justice.
The climate metric, maligned by the Trump administration, helps build the cost of future climate harms into state electricity plans and markets.
BY PETER FAIRLEY, INSIDECLIMATE NEWS
AUG 14, 2017
The social cost of carbon takes into account the costs of future damage to human health, property and the environment connected to the burning of fossil fuels. Credit: Mark Wilson/Getty Images
The social cost of carbon was an arcane but important tool in the federal climate toolbox until President Donald Trump targeted it in his sweeping March 2017 executive order to weaken climate actions.
Now, states are taking up the metric.
Policymakers and regulators in several states, including New York, Minnesota, Illinois and Colorado, are using the social cost of carbon to measure and reduce CO2 impacts from their power grids. Some are using it to compensate rooftop solar panel owners who feed low-carbon power in the grid. Others use it to incentivize nuclear power and renewable energy. Their efforts, aimed at reducing planet-warming greenhouse gas emissions, come as Congress and the Trump administration try to restrict its use.
"It's been striking to see the progress on this front even as the Trump administration has tried to undermine the use of a social cost of carbon," said Rachel Cleetus, chief economist and manager of the climate program at the Union of Concerned Scientists.
Put simply, the social cost of carbon is a dollar estimate of the future damages from droughts, sea level rise, heat waves and other climate impacts wrought by each ton of carbon dioxide released to the atmosphere. Climate change caused by planet-warming CO2 emitted by fossil fuel power plants will diminish ecosystems, damage infrastructure and harm people's health, but until there is a price on carbon, most of those costs will not be paid by power generators or passed on to their consumers. Instead they will be borne by the environment and the public.
By calculating a cost in today's dollars for these impacts, and using it when regulating energy investments and implementing climate policies, the states can put cleaner energy sources on a more level playing field with fossil fuels. Wind and solar farms, nuclear power and energy conservation efforts are often less expensive than harmful alternatives when the damage potential of fossil fuels is taken into account.
Many corporations use a similar approach by incorporating a "shadow carbon price," which bakes the future costs of climate change into their decision-making, Cleetus notes. Putting a price on carbon adds to today's cost of polluting power plants, helping companies to more accurately evaluate how expensive these long-term investments could be in the future, especially if stronger climate policies down the road lead to plant shutdowns before they reach the end of their lifespan.
"When making investments that are going to be around for decades, you want to make sure they take account of future conditions," Cleetus said.
Until recently, the use of a social cost of carbon at the state level has been overshadowed by another means of putting a price on carbon—"cap-and-trade" markets, such as California's, which set a cap on statewide emissions but allow companies to buy or sell emissions allowances within that cap.
But experts say state adoption of a social cost of carbon may have even greater impact, because social cost of carbon estimates are typically higher than carbon market prices. While states are using a variety of values for a social cost of carbon, most are above $40 per ton—about three times higher than recent carbon prices on the California market.
Power Planning with Future Costs in Mind
Minnesota and Colorado have both made moves this year involving a social cost of carbon: their states' public utility commissions (PUCs) issued rulings requiring their biggest utility—Xcel Energy—to consider a $43-per-ton social cost of carbon when planning new power plants.
"Whether the commissioners choose to act on it remains to be seen, but at least today they'll have the information," said Erin Overturf, chief energy counsel for the Boulder-based environmental group Western Resource Advocates, one of the petitioners that prompted the Colorado PUC ruling.
Colorado's PUC told Xcel Energy to use $43 per ton of CO2 pollution generated starting in 2022 and to set a schedule for ramping that up to $69 per ton by 2050. The starting figure matches the last estimates from President Barack Obama's Interagency Working Group on Social Cost of Carbon, which Trump has disbanded.
The figure includes all projected climate damages through the year 2300. It then adjusts them to present values using a 3 percent discount rate—a parameter that spurs much debate among economists. The federal working group used three discount rates: 2.5 percent, 3 percent and 5 percent; higher discount rates afford less current value to future costs, while lower values do the opposite.
Minnesota's PUC followed suit in July. The state has used a social cost of carbon to guide its policies since 1993, but the value was outdated. The July ruling dramatically increased its upper range, from about $4.50 to $43 per ton. Xcel and other utilities will be expected to run cost-benefit studies using both a low-end figure, of just over $9, and the new high-end figure of $43, when assessing new power plant projects in the state.
"I’m not going to build new coal plants in today’s environment," Xcel CEO Ben Fowke said in April. Credit: Zach Gibson/Getty Images
Curiously, Xcel Energy appeared to take contradictory positions in the two states. Xcel's environmental policy manager in Minnesota, Nicholas Martin, told its PUC that "bold action is needed" on climate change and that a higher social cost of carbon would empower Xcel to cut carbon emissions "aggressively and affordably."
Meanwhile, in Colorado, Xcel officials went on the offensive against the social cost of carbon, arguing that it would be unduly "burdensome" and that large uncertainties in the federal working group's calculations rendered it unreliable — echoing attacks by conservative think tanks and Republican leaders.
If a social cost of carbon had to be used, Xcel argued, it should include only those climate damages occurring in Colorado or the United States, rather than worldwide. That critique matches changes in federal policy Trump made via his executive order. Federal agencies should set their own social costs of carbon, Trump ordered, but could base them upon harms to the United States only, not the world. Of course, emissions go into the global atmosphere, causing global problems.
During the Colorado proceedings, advocates for climate action and solar power pushed back hard.
"It got pretty heated," Overturf recalled. Only by valuing the impacts of climate change can the PUC consider how power plants in Colorado contribute to it and the harm it may cause to both Coloradans and the state's power system.
"By completely excluding ... externalities, you're really just sticking your head in the sand," she said. "We know that climate change makes our [power] generation fleet less efficient. We know that it causes wildfires and other natural disasters that affect our transmission and distribution system. We know that there are actual costs to utility customers that come from not acting to prevent catastrophic climate change."
Xcel Energy did not make an official available to comment but provided a statement to InsideClimate News saying it already uses a shadow price to "account for the risk of future carbon regulation." It added that Xcel opposed using the social cost of carbon in Colorado because that state's PUC, unlike Minnesota's, is not obligated by state statute to consider externalities such as climate damage.
Tilting the Scale to Cleaner Investments
The social cost of carbon is already having an impact on power choices in Minnesota, and that can only increase with the higher values approved in July, said Leigh Currie, senior staff attorney for the Minnesota Center for Environmental Advocacy and a leading proponent of Minnesota's social cost of carbon boost.
She cites two examples where the PUC favored cleaner investments—proposed by power project developers or utilities—that cost a little more today but looked more economical when the social cost of carbon was added:
In 2014, the PUC approved a solar project that made headlines as the first head-to-head win for utility-scale solar power without any state subsidies over competing natural gas proposals. Minnesota's PUC picked the 100-megawatt solar project, proposed by Edina, MN-based Geronimo Energy, even though it cost "half a percent" more to build and run than the gas-fired competition. The PUC cited several countervailing factors favoring Geronimo's project, including the social cost of carbon analysis. The resulting Aurora Solar photovoltaic power project, the state's largest, was completed last fall.
Last year, the PUC approved Xcel's proposal to beginning shutting down the state's largest coal-fired power plant early and replacing its generation with a combination of wind, solar and gas-fired power. In the standard cost study, shutting the coal generators appeared to be one of the most expensive options on the table, but the scenario including the social cost of carbon showed it to be the cheapest, Currie said.
Energy consultant and former Maine regulator David Littell, with the nonprofit The Regulatory Assistance Project, estimates that 10 to 20 state PUCs are likely using a social cost of carbon in such planning and procurement decisions, although they may be flying under the radar. He said Maine's PUC used it during his service from 2010 to 2015.
Other states are giving the social cost of carbon at least an indirect role in competitive power markets, in which power plants bid to determine how often they run and what they earn for their electricity. Last year, New York and Illinois used the social cost of carbon to design revenue-boosting incentives to keep low-carbon nuclear power running despite stiff competition from cheap gas.
New York is now considering a broader application that would directly affect daily bids on the competitive power market.
New York's concept is to add a fee, based on the social cost of carbon, to bids from coal, gas and diesel-fired power plants. "Generating units that emit carbon would incur a penalty based on their level of carbon emissions and the social cost attributed to carbon," said Brad Jones, CEO of the New York Independent System Operator, in testimony before the House Committee on Energy and Commerce's Subcommittee on Energy last month. "The penalties collected by the NYISO would then be returned to customers in some equitable manner," he said.
Jones said the plan would harmonize NYISO's wholesale markets with the state's clean energy policies, which include goals to have half of the state's power come from renewable sources and cut greenhouse gas emissions 40 percent by 2030.
The idea is popular with economists because it means the prices consumers pay will more closely reflect electricity's full cost, including externalities (rather than just the cost to build and fuel power plants).
The Steel Winds wind farm in Lackawanna, N.Y., was built on the grounds of a former Bethlehem Steel Plant. New York has a goal of getting 50 percent of its power from renewable sources by 2030. Credit: John Moore/Getty Images
Littell expects that New York's plan would give an advantage to cleaner resources. Wind and solar farms, nuclear plants, and energy conservation providers should operate more often, he said, and get paid as much as $15 more per megawatt-hour for their resource compared to a power plant burning natural gas. That is a substantial increase from the average $18- to $40-per-megawatt-hour rate that the state's power suppliers earned last year (depending on the region).
John Moore, a senior attorney at the Natural Resources Defense Council, and Littell said the plan should also have a long-term effect on what types of plants get built, since investors make decisions based largely on the revenue they expect a plant will earn. Moore predicts that it will give a preference to gas plants that cost more to build but that operate more efficiently, and help cleaner options beat even the best gas plants "so that the region doesn't just continue to rely heavily on natural gas."
Using a social cost of carbon could help many more states avoid relying too heavily on gas, Cleetus said. She cited a 2015 report by the Union of Concerned Scientists that found that two-thirds of U.S. states were "putting their electricity consumers at financial risk because of an over-reliance on natural gas." Florida ranked highest, followed by several other southeastern states, Ohio, and Pennsylvania.
NYISO, the New York state power grid operator released a study of its concept by the Brattle Group, a leading energy consultancy, on Friday. In a joint letter NYISO's CEO Jones and his counterpart at the New York State Department of Public Service announced that they would collaboratively discuss its feasibility with "all stakeholders and market participants."
Other markets could follow. PJM Interconnection, which operates a regional power market in the mid-Atlantic states, has already issued a proposal for integrating a carbon price.
New York has an advantage—since it has its own competitive market, it does not need to negotiate with other states to move forward. However, it will confront inevitable legal challenges from owners of fossil-fueled plants that argue using the social cost of carbon unfairly tilts the market against them.
Moore and others say recent federal court rulings on related challenges have been deferential to states' rights to incentivize attributes of their power supply. But a challenge could also be lodged with the Federal Energy Regulatory Commission (FERC), which oversees wholesale electricity and gas markets and whose composition is in flux. The Senate recently approved two Republican Trump appointees to join the panel's incumbent Democrat. (Two more Trump nominees, one from each party, await Senate confirmation.)
What may be critical for New York and other states using the social cost of carbon is how they implement it. Both the federal courts and FERC have favored state interventions in electricity markets when state leaders, including the legislature and governors, rather than power system operators, define the policy and then delegate its implementation. As Moore put it: "The more the state drives the policy, the more likely the courts and FERC are to go along with it."
As for the federal government's use of social cost of carbon? Although Trump killed the inter-agency working group that set values for all agencies to use, the social cost of carbon lives on in Washington as a diminished version of its former self. Trump empowered each federal agency to set its own value, inviting them to ignore climate damage outside the U.S.
That is likely to draw a legal battle since carbon emissions cause global damage, Cleetus said: "Clearly with this administration they're going to attempt to lowball it. That will prompt legal challenges if they're using a low number that doesn't reflect the latest science or their legal obligations."
Meanwhile, Cleetus said, we're losing time. "If we don't take it into account, it doesn't go away. Society still bears that cost in terms of wildfires, or floods or sea level rise. You're just shoving that cost onto Americans at large."
REGULATION COAL CLEAN ENERGY BUSINESS AND ACCOUNTABILITY
CLIMATE CHANGE DONALD TRUMP
US & World
Why shifting regulatory power to the states won't improve the environment
Michael A. Livermore, University of Virginia Updated 9:03 am, Saturday, August 5, 2017
(The Conversation is an independent and nonprofit source of news, analysis and commentary from academic experts.)
Michael A. Livermore, University of Virginia
(THE CONVERSATION) President Trump and his appointees, particularly Environmental Protection Agency Administrator Scott Pruitt, have made federalism a theme of their efforts to scale back environmental regulation. They argue that the federal government has become too intrusive and that states should be returned to a position of “regulatory primacy” on environmental matters.
“We have to let the states compete to see who has the best solutions. They know the best how to spend their dollars and how to take care of the people within each state,” Trump said in a speech to the National Governors Association last February.
Some liberal-leaning states have responded by adopting more aggressive regulations. California has positioned itself as a leader in the fight to curb climate change. New York is restructuring its electricity market to facilitate clean energy. And Virginia’s Democratic governor, Terry McAuliffe, has ordered state environmental regulators to design a rule to cap carbon emissions from power plants.
State experimentation may be the only way to break the gridlock on environmental issues that now overwhelms our national political institutions. However, without a broad mandate from the federal government to address urgent environmental problems, few red and purple states will follow California’s lead. In my view, giving too much power to the states will likely result in many states doing less, not more.
Politicians are happy to praise states’ rights, but they rarely say much about what federalism is supposed to accomplish. Granting more power to the states should not be an end unto itself. Rather, it’s a way to promote goals such as political responsiveness, experimentation and policy diversity.
Many U.S. environmental laws include roles for states and the federal government to work cooperatively to achieve shared objectives. Often, this involves the federal government setting strict goals, with states taking the lead on implementation and enforcement. This careful balance of federal and state power has been implemented by Republican and Democratic administrations alike.
In recent years, scholars have expanded on Justice Brandeis’ famous “laboratories of democracy” model of federalism with the notion of “democratic experimentation.” Brandeis’ core insight, updated for contemporary society, is that decentralization lets state and local governments experiment with different policies to generate information about what works and what doesn’t. Other states and the national government can use those insights to generate better policy outcomes.
But as I have shown in recent work, there is no guarantee that state experimentation will produce neutral technical information. It also can generate political information that can be put to good or bad uses.
For example, state experimentation with pollution controls may allow regulators to identify cheap ways to reduce emissions. On the other hand, big polluters may use the opportunity to figure out clever ways to avoid their obligations.
This happened in the 1970s and ‘80’s after the Clean Air Act was enacted. State experimentation allowed polluters to learn that by building very tall smokestacks at electric power plants, they could send pollution downwind while keeping local officials happy. Experimentation resulted in information on how to push pollution around instead of cleaning it up, and utilities in midwest states used this knowledge to shift pollutants to states downwind in the Northeast.
It makes rhetorical sense for the Trump administration to wrap its environmental agenda in federalism. Air and water pollution are unpopular, and conservation groups have called out Trump’s policies and budget for undoing “environmental safeguards.”
Reframing deregulation as federalism turns the issue into a debate about how to allocate power between the national government and the states. But striking the right balance between federal and state power requires careful attention to context and the costs and benefits of decentralization.
For example, Pruitt has formally proposed to rescind the Clean Water Rule, an Obama administration regulation that clarifies the jurisdiction of EPA and the Army Corps of Engineers to regulate smaller water bodies and wetlands under the Clean Water Act. One might think that without EPA on the beat, states will take a more central role in water pollution control. But in fact, many states have passed laws banning any clean water regulation that is more stringent than federal standards. Shifting responsibility in this area back to states will create a policy vacuum instead of space for experimentation.
There is even more need for a federal role in addressing problems that have global impacts, such as climate change. Once greenhouse gases are emitted, they do not just cause warming in the place where they were released. Instead, they mix in the atmosphere and contribute to climate change around the world. This means that no given jurisdiction pays the full cost of its emissions. Instead, in the language of economics, these impacts are externalities that are felt elsewhere.
This is why a global agreement is needed to effectively slow climate change. The United States has already withdrawn from the Paris climate accord. If we pull back on regulating greenhouse gases nationally as well, many states will have little incentive to take action.
Under the Obama administration’s Clean Power Plan, which Pruitt is reviewing and has told states to ignore, every state was required to figure out how to meet a carbon reduction goal. However, it did not dictate how they should do it.
This approach would have produced valuable political information from red and purple states, which tend to rely more heavily than blue states on fossil fuels. By forcing Republican leaders to craft state climate policies and sell them to their constituents, the Clean Power Plan promoted what I consider truly useful experimentation that could have helped break the national gridlock on climate policy.
Now, without a prod from the federal government, those experiments are unlikely to occur. EPA’s retreat will mean that we have less, not more, insight into smart and politically viable ways of cutting carbon emissions.
Any regulation can be improved on, and the Trump administration could have risen to that challenge. Instead, the leadership at EPA is abdicating the agency’s traditional leadership role. In doing so, it is promoting stagnation and backsliding rather than innovation.
This article was originally published on The Conversation. Read the original article here: http://theconversation.com/why-shifting-regulatory-power-to-the-states-wont-improve-the-environment-78245.
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“I think a lot about electric cars,” Tesla CEO Elon Musk famously said at a party at the very end of the 80s. “Do you think a lot about electric cars?” The problem with thinking a lot about electric cars is that certain things become impossible to unthink: powering a car with fossil fuels, meeting 21st-century challenges with 19th-century answers, become more than irresponsible. It becomes ridiculous.
You’ll never know when the tipping point is – it’s possibly as little as five minutes – but think enough about electric cars, especially if you’re a car manufacturer, and wham … you’re Volvo. They were rolling along perfectly happily until they thought too hard: about their business model and benefit to society; about climate change and their future customers; and so they made the decision that all their cars would be fully electric, or at least hybrid, by 2019. Not one car solely powered by internal combustion engine will come off a Volvo production line by 2020.
It is impossible to overstate the significance of this, and not because you are ever likely to buy a brand-new Volvo. If every branded car is a Veblen good – that is, something you want precisely because it is expensive, to flag to the world your ability to own it – then the Volvo is a peculiar inversion, the car you buy that looks less flash than it is, to show the world that you’re not the kind of person who shows off what they’ve bought. Nope, nobody here is buying a brand-new Volvo in 2019.
Yet this will instantly change the charging infrastructure for electric cars: there have already been pretty extraordinary advances in charge speed. You can fully charge an electric vehicle – one with a range of about 105 miles – in half an hour from a supercharger in a garage, which is the difference between being able to use an electric car in a normal way, and having to rebuild your life around it. However, there aren’t enough superchargers, in Europe or the US, and, maddeningly, a lot of the slower chargers – which take four to six hours – still call themselves “high speed” because that’s what they were when they were installed. Volvo will shunt progress forward worldwide on genuinely high-speed charging points, as well as battery production and research and development into battery storage.
Perhaps the greater impact still will be on other car manufacturers: those which have an electric vehicle (EV) model – such as Nissan with its Leaf, BMW with the quirky i3, Hyundai and the delightful Ioniq – will look altogether less weird. For a car manufacturer to reject the technology altogether will start to look luddite to the point that it will probably become untenable. Hybrid cars, meanwhile – which ultimately still rely on petrol, however good their regenerative braking is – have overnight become a kicking-off point in climate-conscious development, rather than the compromise solution. This will be annoying for Toyota, but the Prius has had a good run.
The car industry is always taught as a classic in the MBA model of business behaviour: it seeks to make a profit, and does so. Its product has massive, devastating consequences for the world, but nobody can see them. The necessity for improvement would therefore come from one of two places – consumers demanding less polluting vehicles, which would damage profit; or innovators from outside, producing something cleaner, which can’t happen with cars because of the high barrier to entry.
And so, the argument goes, the car industry, perceiving electric cars to be a threat to the profitable petrol model, and facing no challenge from modernisers, has simply done what a business does – put shareholder value maximisation first and ignored the negative externalities.
This reading is blind to an emotional dimension that’s far more important than profit: petrol versus electricity is a culture war, a battle between the petrol head and the hippy, the self-sufficient Randian hero and the bleating environmentalist.
Who Killed the Electric Car?, a 2006 documentary, tells the story of General Motors and their EV1, an electric car it made in the 90s. The car failed not because nobody wanted one, but because too many did: GM became anxious that it would look as though California legislators – who had launched a zero-emissions target – had won. Other states might have followed, and the mighty car giant would become the bitch of some democratically elected representatives, the prospect of which was so appalling, they recalled all the cars and crushed them.
This story is not about money: it is about raw human emotion, played out at an institutional level. A comparison often made is to the tobacco industry, which kept itself going by indignantly denying claims that its products caused death. But if a cigarette had come along that did the same job and didn’t cause cancer, would it have seriously quashed it simply to protect its existing manufacturing model? And if it had, would that have been business or pleasure?
There is another, related precept, relevant to climate change: the classic understanding of the relationship between government and industry. The state is meant to enforce social good through regulation, tax, and funding, while industry is supposed to respond by innovating to meet those challenges and restrictions.
This overestimates the smooth pursuit of social benefit by government (well, maybe except for Sweden) but, more critically, underestimates the human beings who run the companies. The profit-model effectively removes moral agency from commerce, turning its CEOs into donkeys, to be directed only by carrots and sticks. We then bemoan their mulishness and sly ways, as they avoid the stick and do backroom deals with the carrot-holder.
We cannot split the world into those who want the best for it on one side, and those who will make a profit under whatever conditions are available on the other. If we’re to believe in positive collective action enough to pursue it, we have to re-imagine business as a human activity whose profit motive is partial, not paramount.
Not one car solely powered by internal combustion engine will come off a Volvo production line by 2020
Clearly, the environment would benefit most if we were to stop driving altogether. Electricity is only cleaner if it’s made in a cleaner way, and long-term, the goal has to be an electric car powered by renewable energy. There is a case to be made about the looming crisis of our lithium demands, as all our waking activities hop from one battery to another. Those are conversations to have alongside, and not instead of, the electrification of cars.
The American physicist and environmentalist Amory Lovins gives a lecture about catastrophic climate change and our prospects for avoiding it. It starts with him arriving with a helmet on his head and inviting people to hit it. It’s made of the chassis material of the future. It doesn’t look particularly impressive, he looks like a nerd with a bowl on his head. It’s hard to conceive, from a standing start, what car chassis material ought to look like, yet you have to admit, it should not weigh much. The talk ends with a portrait of a car that is so light that it can incorporate its own solar panel, so modern that it can store its own energy, so efficient that its range, give or take a bit of wear and tear, is infinite, and its cost, less the purchase price, nil.
This is not a component of the fight against climate change, this is the component. This is the single biggest change that would alter the course of history. We are some discoveries away from perfection – solar power storage isn’t there yet – but the main factor is speed. It will change all our lives if we get there fast enough, and mire us in catastrophe if we don’t. Volvo just made it faster.
EXPLAINERS 12 June 2017 16:51
Explainer: The challenge of defining fossil fuel subsidies
12.06.2017 | 4:51pm EXPLAINERS
Explainer: The challenge of defining fossil fuel subsidies
Just over a year ago, the G7 group of nations pledged to end all “inefficient fossil fuel subsidies” by 2025.
This language disappeared from the latest annual G7 communique, signed in Sicily last month, while a similar G20 promise to end subsidies has no deadline.
Meanwhile, on the fringes of such promises lies the perpetual discussion of what the concept of fossil fuel subsidies does – or doesn’t – actually include.
Attempts to add up the annual global total range from a few hundred billion through to the massive $5.3tn estimate published by the International Monetary Fund in 2015.
Carbon Brief takes an in-depth look at the ways fossil fuel subsidies are measured – and why semantic arguments over definitions may be missing the point.
The definition issue
The IEA: a consumer subsidy approach
Consumer subsidy reform
Does the UK have fossil fuel subsidies?
The OECD: an inventory approach to production subsidies
The closest thing to a definition
The IMF stirs it up
Can externalities be subsidies?
What’s in a pledge?
The definition issue
There is no universally agreed definition of what constitutes a fossil fuel subsidy. Multiple organisations make assessments each using their own, unique approach. The huge range of estimates for the value of fossil fuel subsidies is driven by both the methods they use to calculate them and the countries covered.
From government spending on infrastructure, such as oil pipelines, to price controls on domestic energy, these organisations often count fossil fuel subsidies or support in very different ways. The table below breaks down how four major bodies make their calculations. These are examined in further detail below (as are producer, consumer and “post-tax” subsidies).
The subsidies in most analysis can be broken down into two types of subsidies: those given to producers and those to consumers.
Consumption (or consumer) subsidies are those which reduce the price of energy to consumers, for example, through government controls on the cost of petrol or power. These have often been put in place to lower transport bills or help poor families access electricity.
Calculations of consumer subsidies effectively measure the difference in the domestic price of the fuel compared to the global market price. William Blyth, an expert in energy security and climate change policy and author of a 2013 report on fossil fuel subsidies for the UK’s Environmental Audit Committee (EAC), tells Carbon Brief:
“It’s very easy to tell in a particular country if a price of petrol is lower than the going rate, then that’s a clear measure of the [consumer] subsidy. […] It’s how subsidies are often done particularly in developing countries where governments want to make energy products cheaper for consumers, because it’s a popular policy decision, and that can affect, for example, petrol and diesel prices, LPG [liquid petroleum gas] for cooking, and so on.”
The trouble with this, says Blyth, is that consumer subsidies are, in fact, often applied to products, such as petrol, which only the relatively rich can afford. “That subsidy is coming from the general tax base.`So, in fact, what you see is that that subsidy is actually creating a transfer of wealth from poorer to richer people,” he explains.
Much of the global attention on subsidy reform has been looking at overturning consumer subsidies. However, as they are largely absent in richer nations, this narrows the focus of subsidy reform to developing countries. “That picture of the world tended to say energy subsidies is a developing country issue and it’s not really an issue for developed countries,” says Blyth.
The IEA: a consumer subsidy approach
In its calculations of fossil fuel subsidies across 40 developing world countries, the Paris-based International Energy Agency (IEA) uses the “price-gap” approach, a method which compares domestic energy prices to the international market price and, therefore, largely incorporates only consumer subsidies.
This approach means the IEA does not try to explain how or if producers are compensated by government for selling their products at a lower price. Instead it simply calculates the price difference and labels this a subsidy. This could have been provided via a direct budgetary transfer – which is usually considered a subsidy – or through a tax concession – which some don’t consider as a subsidy. Either way the IEA doesn’t report this.
While most broadly accept that what the IEA calculates can indeed be called a “subsidy”, there are some areas of discord. For instance, Assia Elgouacem, a consultant at the Organisation for Economic Co-operation and Development (OECD), tells Carbon Brief:
“One point of contention that emerges from the IEA price-gap approach is that a number of hydrocarbon-producing countries are of the opinion that the reference price should be based on the cost of production rather than on import- or export-parity pricing.”
The IEA’s most recent report put global fossil-fuel subsidies at $325bn in 2015 – just 6% of the IMF’s total estimate for subsidies for 2015, which included producer subsidies and externalities (see below).
Consumer subsidy reform
The IEA’s 2015 estimate was also down 35% from almost $500bn in 2014, a drop which the IEA said reflected lower fossil-fuel prices and a subsidy reform process that has gathered momentum in several countries, from Mexico to Egypt.
These concerted efforts in many developing countries to remove consumer fossil fuel subsidies are especially significant since government expenditure on such subsidies can exceed public spending on education or health in some countries.
In Indonesia, for example, spending on fossil fuel subsidies in 2016 is thought to have come to less than 1% of GDP, compared to over 3% in 2014, when President Joko Widodo implemented a series of reforms after taking office three years ago.
Meanwhile, in India, alongside other reforms, a campaign launched by Indian prime minister Narendra Modi in 2015 encouraged rich Indians to voluntarily give up their Liquid Petroleum Gas (LPG) subsidy in order to “make a personal contribution towards nation-building” and help poor people to move away from burning firewood. Over 10 million people have already signed up to relinquish their subsidy.
A recent report from the Nordic Council of Ministers found that countries such as Bangladesh, Indonesia, Morocco and Zambia, who are already undergoing energy reforms, would particularly benefit from transferring funds that normally go on fossil fuel subsidies towards sustainable energy investment, such as renewable energy and energy efficiency.
Unlike consumer subsidies, production subsidies are those which make it less costly for producers to develop resources in the first place. They can include things such as tax breaks for capital investment, requiring a lower share of profits to be given as tax from developing a resource, public finance specifically given to fossil fuel production, and, in some analysis, investment by state-owned enterprises (SOEs).
Blyth tells Carbon Brief:
“It’s basically giving more of the wealth which is generated from exploiting these fossil fuel resources to the producers, at the expense of the national government, which is the party to that kind of agreement.”
However, as Blyth explains, these type of subsidies can be hard to define. And as it is difficult to measure the effect of a particular production subsidy on the global price, they tend not to show up in the price-gap methodology used by groups such as the IEA.
With such a large array of ways of providing production subsidies, it can also be difficult – and contentious – to label what actually is a production subsidy and what isn’t.
This has proved controversial in several countries, including the UK, which claims it has no fossil fuel subsidies.
Does the UK have fossil fuel subsidies?
The UK defines fossil fuel subsidies as government action that “lowers the pretax price to consumers to below international market levels”.
Since a reduction in the usual rate of tax paid in a certain sector (such as North Sea oil and gas) doesn’t fit into this definition, the government says this isn’t subsidy.
Therefore, despite multiple reports highlighting how the UK gives frequent financial support to prop up its oil and gas industries, the government argues it is simply lowering the sector’s already higher-than-usual rate of tax and has no fossil fuel subsidies.
Government response to a 2015 Freedom of Information (FOI) request asking for information on fossil fuel and renewable subsidies. The government reiterated this stance in February 2017.
For instance, chancellor Philip Hammond recently announced new help for the North Sea oil and gas industry, also highlighting the “unprecedented support already provided to the oil and gas sector through £2.3bn packages in the last three years”.
A recent Carbon Brief analysis found the UK’s North Sea oil and gas sector actually became a net drain on public finances in 2016, with the sector receiving an overall £396m in 2016, even when tax payments were taken into account. Another investigation released by Greenpeace and Private Eye in April found the UK had pledged £4.8bn in financial support to fossil fuel firms since 2010 through UK Export Finance, the government agency that supports risky export deals to boost international trade by providing guarantees, insurance and reinsurance against loss.
As Blyth explains, the reason the labelling of production subsidies such as those in the UK is so contentious is because they are in essence the result of a negotiation on how resources that are generated from exploiting oil and gas reserves are split between the private company and the country.
He tells Carbon Brief:
“That becomes a very individual sort of negotiation in most cases, and there isn’t really an international global standard against which to measure what’s normal…The way producer subsidies are defined is a deviation from the normal tax regime of the country. But the normal tax regime for the UK is different from the tax regime of Norway and the Netherlands and wherever else, so it’s not really possible to define what [deviation from normal] means globally.”
It’s worth noting that in the same FOI document quoted above, the government said it had given over £4bn in direct subsidies to renewables in 2014 to 2015.
In some ways, this goes to the heart of the debate over fossil fuel and renewables subsidies in developed countries, which often amounts to the issue of comparing often direct payments given to renewables to the tax breaks, reduced-rate VAT, investment support or even unpaid externalities which are used to support fossil fuel production.
The OECD: an inventory approach to production subsidies
The Organisation for Economic Co-operation and Development (OECD) – a collective of 34 democracies with market economies which aims to stimulate economic progress and world trade – reports on fossil fuel “support mechanisms”. Its estimates broadly cover producer support to fossil fuels in the 34 OECD countries and a handful of large partner economies, such as Russia, India and China.
The OECD uses the term “support”, which it says is deliberately broader than some conceptions of “subsidy”, in a bid to get away from debates over what is and isn’t included.
Unlike the IEA, the OECD uses an “inventory” approach to provide a bottom-up breakdown of the policies and instruments governments are using to support or provide preference for fossil fuels in some way over alternatives. This could include, for example, the use of budget support to provide tax breaks or consumption subsidies for diesel. “For that you have to go into the detail of national tax regimes for the oil and gas sector etc, and it’s quite a detailed study,” says Blyth. It’s worth noting that the OECD does not try to strictly quantify the total amount spent on fossil fuel support using an exhaustive analysis.
According to Ronald Steenblik, a trade policy analyst at the OECD, totalling up the IEA and OECD estimates is a reasonable way to approximate the spend on worldwide support to fossil fuels. He tells Carbon Brief:
“A golden rule for inter-governmental organisations is ‘thou shalt not duplicate work that other organisations do’. So the OECD’s estimates complement the information provided by the IEA…There is a bit of overlap between [the two] estimates – mainly regarding Mexico and India (we are working with the IEA to eliminate those) – but, otherwise, adding the two sets of estimates together yields a rough approximation of most of the world’s support to fossil fuels.”
Shelagh Whitley, head of the climate and energy programme at the Overseas Development Institute (ODI), a UK-based thinktank which publishes regular reports on fossil fuel subsidies, says the OECD’s approach is actually the most practical instruction manual for those seeking reform.
This is because it gives specific policy-by-policy information on what can be changed; whether that be a certain type of support in a particular state or region, through to an oil field or mine. “The other institutions are looking more at data that can shape government policy or can shape international policy,” she says.
The OECD’s most recent inventory in 2015 catalogued almost 800 individual measures in the 41 mainly developed countries it covers. These had an overall value of $160bn-$200bn per year between 2010 and 2014. The OECD noted such support “seems to follow a downward trend” – again both because of low oil prices and policy signals from governments.
The closest thing to a definition
The OECD bases its inventory on the World Trade Organisation (WTO)’s 1994 definition of fossil fuel subsidies – the only internationally agreed definition of the term.
It labels subsidies as a “financial contribution by a government” which “confers a benefit” on its recipient. It specifically includes grants, loan guarantees, tax breaks and the provision of goods or services by the government in its definition. As noted above, some governments such as the UK sideline this definition, by arguing their tax breaks are not subsidies.
Like the OECD, the Overseas Development Institute (ODI) (see above) uses the WTO definition in its reports on fossil fuel subsidies. However, it goes over and above the types of producer subsidies included in the OECD inventory to include public finance (such as loans given by majority state-owned banks) and investment by state-owned enterprises (SOEs) in fossil fuels.
In its 2015 report on G20 subsidies to oil, gas and coal production, the ODI – in collaboration with Oil Change International (OCI) – found these amounted to $452bn a year, over twice the amount in the OECD’s inventory. (The report also singled out the UK for substantially increasing support for fossil fuels production in recent years to prop up its increasingly uneconomic domestic industry.)
Blyth argues much of the reason behind this higher value comes down to what is defined as “normal” and, therefore, what deviations from the normal are.
For instance, he says, the OECD tends to say things such as tax breaks on capital investment for decommissioning of old oil rigs are managing the end of life rather than production subsidies. The ODI/OCI study, on the other hand, says any sort of tax break – even for decommissioning old oil rigs – would still count as a subsidy, since this lowers the overall cost to the industry.
(It’s worth noting here that the OECD is currently in the process of updating its inventory, with the new version set to be released this autumn. According to the OECD, this will include a method for measuring the “subsidy-equivalent” of concessional loans and loan guarantees along with some examples.)
The ODI analyses often concentrate mainly on economies with producer rather than consumer subsidies, with its reports looking at blocs such as the G20 and the EU. In its most recent report, released last month, it found 10 EU member states had given an average of €6.3bn per year in subsidies to coal over the past decade. Six of these had even introduced new subsidies – worth a collective €875m per year – to support the coal sector since 2015, the year the Paris Agreement was made.
The list of organisations calculating subsidies in one way or another goes on, with calculations by a raft of others including the World Bank and the Asian Development Bank, alongside many non-profit or research bodies, such as the Stockholm Environment Institute (SEI), Bankwatch and Influence Map.
But there is one organisation which a few years ago took a more radical (and fiercely debated) approach to calculating fossil fuel subsidies: the International Monetary Fund (IMF).
The IMF stirs it up
The International Monetary Fund (IMF), conceived at a UN conference in 1944, is a Washington DC-based body of 189 nations which works to promote international economic cooperation and standardise exchange rates. Its mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
Back in the lead up to the UN Paris climate conference in 2015, the IMF released a major report which reignited the discussion over the worldwide cost of fossil fuel subsidies.
The report estimated that the world would be spending a colossal $5.3tn on energy subsidies in 2015, with most of this supporting fossil fuels. Equal to $10m a minute, this is an amount greater than the total annual healthcare spend by all the world’s governments. It is also around ten times the IEA and OECD values combined.
If all these subsidies were eliminated, the IMF said worldwide government revenue could be raised by $2.9tn, around 4% of the global economy in 2015. Meanwhile, global CO2 emissions would be cut by over 20% and air pollution deaths more than halved, the IMF said.
These are huge numbers. However, as several commentators noted, the IMF’s report looked at something rather different than most of the other attempts to add up subsidies to the energy sector. This is because it was one of first estimates of energy subsidies which incorporated “externalities” (or, as it called them, “post-tax subsidies”) into its calculations.
The IMF effectively said that any failure to factor in the full costs of using fossil fuels should be counted as a subsidy. This included any financial burden which fell on society due to the effects of air pollution or climate change caused by using fossil fuels. Removing these subsidies would, in practice, mean increasing the price of energy to cover the full health and environmental costs of using fossil fuels.
The IMF concluded all this made its calculation an “extremely robust” estimate of the true cost of fossil fuels – and how much they were being propped up by governments.
According to Blyth, the IMF report was important as it brought together the subsidy debate and carbon pricing debate, which had previously taken place in parallel. He says:
“Basically, what they’re saying is that the new normal should be to include, for example, carbon prices and carbon taxes into the price of the fuel, so that you’re paying for the external environmental damages and so on within the price of that fuel. And if that’s not priced in then that’s counted as a subsidy. That’s really changing the game in terms of subsidy definition.”
The grid below gives a basic breakdown of the types of subsidy (or otherwise) covered by the four main organisations covered in this piece.
Comparison of the subsidies or support to fossil fuels covered by different organisations. *Note that this is a broader metric which may in some cases capture the impact of the other subsidy types. Grid by Carbon Brief
Can externalities be subsidies?
The IMF report prompted much debate on whether externalities can really be labelled as subsidies. “[T]here is something rather Orwellian about describing a failure to tax something as a subsidy,” wrote Sam Bowman in the Daily Telegraph. “Rebranding externalities as subsidies might make for good headlines in the left-wing press, but it also makes for stifled debate and woolly thinking.”
Brad Plumer in Vox, meanwhile, pointed out that even if you accept the premise of allowing externalities to be subsidies, the IMF included some that are pretty tenuous to say are caused by fossil fuel use, such as traffic fatalities and congestion. Still, it’s worth pointing out that the lion’s share of the cost of externalities in the IMF report were from global warming and air pollution.
Others rejected the IMF’s inclusion of consumption subsidies, such as lower-than-typical VAT rates (as occurs in the UK, where the VAT rate on gas and electricity is just 5% compared to the standard 20%). “They’ve simply assumed that everything consumed in the economy should be paying much the same tax rate in order to raise revenue to pay for government,” wrote Tim Worstall in Forbes. “This just isn’t what we would normally describe as a subsidy although we can, if we want to, stretch the meaning to include it. However, do note that this means that renewables are gaining very much the same subsidies.”
(It’s worth noting that some experts, including Blyth, do consider reduced VAT rates a consumer subsidy. “The UK is almost unique in the OECD countries in having such a low VAT rate,” he tells Carbon Brief. “Normal economic theory would say that you should as far as possible keep the same VAT rates across all products. So that means, in my view, that it is subsidies.”)
But many also rallied to praise the inclusiveness of the IMF report, which some viewed as illuminating the unfair wider financial support with which fossil fuels are often privileged. Nicholas Stern, climate economist at the London School of Economics and author of the influential 2006 Stern review, said the report “shatter[ed] the myth that fossil fuels are cheap” by showing “just how huge their real costs are”.
According to Blyth, one of the most interesting things about the IMF calculation was to see how much the scale of the externalities – whether or not they are acknowledged as subsidies – tended to dominate that of subsidies under their normal definition.
For instance, the figures for air pollution and global warming externalities alone added up to over $4tn, compared to just $333bn for the more conventional forms subsidies (“pre-tax subsidies”). Blyth says:
“I think it puts it into a wider context: ultimately, the community of analysts and so on who are trying to push against subsidies are, ultimately, doing it for environmental reasons, so I think it puts the whole thing on a common sort of footing.”
IMF breakdown of post-tax subsidies by energy type and externalities. The breakdown of the figures in the 2015 report discussed in this piece are circled. Source: IMF working paper. How Large Are Global Energy Subsidies 2015.
What’s in a pledge?
Fossil fuel subsidies have featured on and off in G7 statements since 2009 (at the time G8, before Russia’s ejection), but 2016 was the first time the group had set a concrete deadline for phase out.
But while campaigners cautiously welcomed this 2025 pledge, many urged the G7 to go further by agreeing on a comprehensive phase out of fossil fuel subsidies by 2020. Now, with this pledge dropped from the latest communique last month, it remains unclear whether or not erasing fossil fuel subsidies will remain a priority for the G7. (The 2025 pledge was included, though, in the communique issued today by the G7 environment ministers meeting in Bologna.)
In March, though, G20 countries affirmed their commitment to phasing out “inefficient fossil fuel subsidies that encourage wasteful consumption” (essentially a nod to consumption subsidies). Their communique also included for the first time a call for all G20 countries to undergo a peer review of such subsidies. (It’s worth noting that the UK has declined to take part in this, arguing it does not need to since under its own definition of fossil fuel subsidies it doesn’t have any).
However, the G20 pledge continues to address only a “medium term” phase out despite calls from climate vulnerable nations to set a deadline for this, preferably of 2020.
The table below sets out the statements on fossil fuel subsidies given by both the G20 and the G7 each year since 2007.
For instance, a detailed study released this year by the Stockholm Environment Institute (SEI) looking at the impacts of US government subsidies on oil production and CO2 emissions found that, even at today’s low oil prices, almost half of the new oil fields in the US depend on them in order to go ahead. The report estimated these subsidies could shift about 20bn barrels’ worth of still-undeveloped oil reserves from unprofitable to profitable. Once burned, this oil would emit around 8 billion tonnes (Gt) of CO2 – about 1% of the world’s remaining carbon budget under the Paris Agreement’s 2C target, the SEI said.
It’s worth noting that the US has already undergone its fossil fuel subsidy peer review under the G20 – as has China – and has itself identified 16 subsidies it gives to fossil fuel producers. However, Peter Erickson, a co-author of the SEI report, tells Carbon Brief he would be “surprised” if the new administration under Donald Trump continues to look as closely at these subsidies as past administrations have.
To review: the U.S. Govt lists 16 subsidies to fossil fuel producers. Somehow @RexTillersonHQ wasn’t “aware” of this https://t.co/rydQpVYorv pic.twitter.com/n3FAfwmpKi — Peter Erickson (@SEI_Erickson) January 11, 2017
The ODI also looks into the climate impacts of fossil fuel subsidies. Another of its reports, released in February in collaboration with the Global Subsidies Initiative (GSI), estimated that a complete removal of subsidies to fossil fuel production globally would reduce the world’s emissions by 37GtCO2 between 2017 and 2050. At an average of 1.1GtCO2 per year, this is the equivalent of eliminating all emissions from the aviation sector, the report said.
But even in the case of agreement to phase out such fossil fuel subsidies, there is a need for agreement as to what counts within this – and what doesn’t. The G20 and G7 have no concrete definition of what should be included, leaving the door open to arguments – see the UK – that certain types of support for fossil fuels simply don’t count.
The multitude of different organisations looking at subsidies using different approaches, arguably, doesn’t help this debate. As Whitley argues, the issue is not necessarily that organisations disagree on the “definition” of a subsidy – it is simply that they are looking at different types of support, often in different countries. Ultimately, she tells Carbon Brief, the definition argument is beside the point:
“The issue is not whether or not [countries] by definition have subsidies. The issue is whether they are providing support to fossil fuels when they have pledged to end the use of fossil fuels under the Paris Agreement.”
The point, she says, is that governments are using a range of tools to provide support for those developing fossil fuels. And these tools are important to identify, not just to see a shift away from this support, but also to allow those same tools to be used to support other things, such as green energy. She says:
“We’re often told by governments we don’t have resources, we don’t have the funds to support green energy, we don’t have the money to give to climate finance. But actually if you look at the tools that are used for our current energy system a lot of that is to support fossil fuels and those tools are there.”
The question then becomes not whether this or that tax break counts as a “subsidy”, but whether governments are gearing their full support towards decarbonising their countries’ energy systems in order to avoid dangerous temperature rises, as they have promised to do in the Paris Agreement.
Sharelines from this story
Explainer: The challenge of defining fossil fuel subsidies
It's March. Southern Co. CEO Tom Fanning is sitting in a hotel lounge in downtown Houston talking energy policy, President Trump and what's wrong with U.S. power markets.
At one point, Fanning brings up a name many in the electric industry know, especially in Houston: Pat Wood III.
The former Texas regulator and Federal Energy Regulatory Commission chairman pushed what became, in Fanning's view, "a failed experiment" to spread Texas' merchant approach to electricity. Fanning, whose company is based in Atlanta, says he still believes in "the model that we live in, that we fought hard to retain — the integrated, regulated model."
And Wood? He's committed to his competitive vision, even if there's room for market tweaks. He described, in a March phone conversation, how he drank the "Kool-Aid" years ago when he saw positives from deregulating the natural gas sector.
"Margins are there to be eroded, and so that's what competitive markets do beautifully," said Wood, chairman at Dynegy Inc. "So I'm proud to be associated with that, and I'm proud to wear the laurel that Mr. Fanning gave me."
As questions swirl around business models, no U.S. debate may be more important for the electricity sector than one on wholesale market design. Low gas and power prices, government aid for some generation, and uninspiring demand are causing heartache for generators such as Dynegy and NRG Energy Inc. Sagging economics also raise questions for any party that owns aging power plants fueled by coal and nuclear energy.
To explore where the electric discussion is heading, E&E; News compiled takes from some of the industry's most prominent observers. The views came largely from interviews and appearances at conferences in Texas this year, including CERAWeek by IHS Markit, the Energy Thought Summit, and events put on by the Gulf Coast Power Association and KPMG.
The picture that emerges is one of competing interests and goals. For some players, there's defense of a regulated model. For many, the question is how to reimagine competitive markets to ensure both electricity and compensation are adequate. Renewables and their federal incentives and intermittent nature are often fodder for debate.
A consensus on solutions remains elusive. Parties sought to hash out some ideas during a FERC technical conference this month, including potential actions by grid operators (Energywire, May 3). And FERC nominees have faced questions about market issues. In any case, there's no love lost between regulated providers and merchant power companies.
"We're not a utility," Robert Flexon, Dynegy's CEO, declared last week in Houston. "We don't like utilities. We're a competitive player."
Kemper and Vogtle
Life has become more complicated for Southern since Fanning sat down to talk this past March. At the time, he touted the long-term planning that can accompany a regulated structure. But it remains to be seen what extra costs Southern's customers may face with billions of dollars on the line from two major projects.
In Mississippi, the Kemper County Energy Facility has seen continued delays as it aims to capture carbon dioxide from a coal-fueled power plant. And Westinghouse Electric Co. LLC, a key contractor for planned nuclear reactors at Plant Vogtle in Georgia, filed for bankruptcy in the wake of cost overruns (Energywire, May 25).
We're not a utility. We don't like utilities. We're a competitive player.
Robert Flexon, CEO at Dynegy Inc.
"Two words: Kemper. Vogtle," Wood said this year, suggesting such projects are "way out of economic reason" for ratepayers. Wood was speaking for himself and not necessarily companies where he's on the board, including Dynegy, SunPower Corp. and Quanta Services Inc.
Fanning said the integration of "making, moving and selling energy and single points of responsibility" is preferred to "so-called organized markets." But Wood talked customer choice and said, "Liberty always wins.
"In the great cycles of history, monopolies tend to end up on the shore of failed dreams, and liberty kind of goes on down the river," Wood said.
For companies in competitive wholesale markets, though, design remains front and center. Are markets actually competitive? Should nuclear and renewables and coal and other sources receive special treatment? Who should bear the risk of new investments? How urgent is change as consumers enjoy lower power prices driven by cheaper natural gas?
Uncertainty is evident among non-utility power producers, which are facing takeover and merger rumors. At the same time, Energy Secretary Rick Perry has called for a review of U.S. power markets, including examining baseload power and reliability.
Another marker came recently as PJM Interconnection LLC, a grid operator with a presence in the Mid-Atlantic and Midwest, announced lower capacity prices in much of its footprint (Energywire, May 24). And Exelon Corp. said yesterday that it plans to retire the Three Mile Island nuclear plant in Pennsylvania unless the state provides policy reform.
Challenges for Exelon
Fanning, who's chairman of the Edison Electric Institute that represents investor-owned utility companies, referenced Exelon CEO Chris Crane back in March, calling him "a nuclear guy in the middle of merchant markets."
"And at one time, that was really profitable, but now it's not," Fanning said, suggesting Crane was running one of the best U.S. nuclear businesses in a failed model. Crane, speaking in March in Austin, Texas, said market designs weren't sustainable for an all-of-the-above strategy.
"When the government and the markets decide to pick winners and losers versus outcomes, it skews the market," Crane said. He suggested an overemphasis on wind energy destabilized the market in Texas. Fanning said overbuilding renewables and squeezing out some baseload capacity could have "long-term consequences."
But much has been made about subsidies that Exelon lined up for some reactors in Illinois and New York, though those setups were challenged in court (Energywire, Jan. 11). Crane said, "The competitive market was skewed years ago when we decided we wouldn't take a load shape, a demand shape, we would incent based off of a technology."
To him, a way forward for states that want cleaner energy would be having regional transmission organizations put a price on carbon. He acknowledged that might not happen in the near term.
Crane looked back at the polar vortex of 2014, which he said showed the value of nuclear plants. The focus should be on reliability and capacity, he said.
"You hope that we don't turn parts of the country into a third-world country or what you see in the Caribbean when you've got the rolling brownouts during the day," Crane said. "I think we're much more sophisticated, and we can work together to come up with the designs."
A view from the West
Edison International comes at the discussion from its own angle after unloading a merchant generation business.
Pedro Pizarro, CEO of California-based Edison, called the positioning "less an indictment of the whole merchant model and more a reflection of how we view the potential for returns in the sector." The company still relies on merchants for electricity, he said in Houston this year, and he hopes other players in that space are healthy while they're needed.
"I think it's a tough business," Pizarro said. "It's not one that we want to be in."
He expects "continuing work to make sure that the markets' price structures adequately compensate generators who are now shifting from really focusing on meeting peak needs to meeting flexible ramping needs," as an example.
CEO Ben Fowke of Minnesota-based Xcel Energy Inc. said operating in a regulated market enables long-term planning. But he also recognized a need to be thinking about how energy is delivered to customers.
"I have a saying inside the company that, if we want to stay regulated, we better think competitively," Fowke said in Austin this year. "And we apply competitive discipline to all of our decisions, to our culture, to the way we hold each other accountable, to driving innovation."
On the other hand, he said organized markets "tend to be more short-run-oriented" and can stir up "unnecessary swings and volatility." He said they are hurting the ability for nuclear plants to operate amid low prices, and that will need to be addressed further in his view.
Different places, different models
Barry Smitherman, a former Texas energy regulator, said it's fine to see different models in different parts of the country, including competitive ones managed by the Electric Reliability Council of Texas (ERCOT), PJM and the Midcontinent Independent System Operator.
I've had a lot of meetings with a lot of folks over the last year, and I’m like, 'We got low prices and we got a lot of energy. I don't know what to do for ya.'
Brandy Marty Marquez, a member of the Public Utility Commission of Texas.
"And those markets ought to run competitively until such time as the Congress of the United States says we're going to do it differently," he said in a March interview. For Texas' main grid, such a decision could fall to state lawmakers.
Smitherman said people in restructured markets have been aided by low power prices in light of low natural gas prices.
"You can say it's not the competitive model, it's low gas, but in the competitive market, gas is the marginal fuel, so it has effectively set the price, which has been very low," Smitherman said.
He is a member of NRG's board, though his comments didn't necessarily reflect the views of the NRG board or management.
After speaking in Houston this year, Christine Tezak, a managing director at ClearView Energy Partners LLC, reflected on wholesale power and said many people "who were optimistic about restructured markets are disappointed."
A drop in wholesale power prices over time, Tezak said, has a lot more to do with input pricing tied to gas than with "the brilliant efficiency of market solutions."
Tezak mentioned that factors such as renewable portfolio standards and distributed generation lower the demand available to the rest of the competitive market.
A period of 'disruption'
"Our markets are going through a significant disruption and transformation," Mauricio Gutierrez, CEO of NRG Energy Inc., said during an April interview.
He said it's good to have cheap, abundant and domestic shale gas as renewables become more cost-efficient. Gutierrez also said demand is becoming smarter while state policies are dipping into the electric realm.
His concern? "I'm seeing state actions that basically retrench as opposed to embracing the change," he said. Gutierrez called for "market-based solutions" that have the right price signals and factor in all externalities, such as carbon dioxide.
Exelon's Crane, in an interview, said stakeholders need to get together to look at reliability and costs and come up with the right market design.
But should he and others have seen gas prices dropping before the plunge and adjusted?
"I can tell you that nobody saw it," Crane said, adding that "the rate of efficiency that came into the fracking" wasn't seen "even by the industry."
Does he still believe in competitive markets?
"We are what we are, and it would be very tough to put the competitive market back into a regulated" setup, Crane said. "And we're not seeing a lot of desire for it. If you're a regulated market and your business model's stable, I'm sure you want to stay a regulated model. I think we need to keep working on this competitive market."
Facing a 'conundrum'
Dynegy raised eyebrows last year when it supported draft legislation in Illinois that would've given a boost to some coal-fueled units (Energywire, Nov. 22, 2016). That plan didn't pan out, though aid for some Exelon nuclear generation moved ahead.
Wood said recently that, in his view, the southern Illinois market is "broken" and needs a more competitive model. Competitive markets may not always please shareholders, but Wood said such markets shift risk from ratepayers to competitive companies.
When supplies are tight, according to Wood, a company can come "to the rescue" and "get paid for it."
Still, Gordon van Welie, CEO of ISO New England, told a gathering in Austin this year that "how to maintain the market structure" is a big near-term challenge. The CEO said efforts to decarbonize can push out "resources that we use to keep the lights on in the wintertime, so there's a real conundrum."
He's also pessimistic about the idea of relying on "an energy-market only construct" that's seen in ERCOT. Wholesale prices in that Texas market can rise to $9,000 per megawatt-hour with scarcity conditions, while capacity payments to generators in other U.S. regions are common to try to ensure there's enough supply.
"In an energy-only market design, you have to politically be willing to kind of live through the tide going out," Cheryl Mele, ERCOT's chief operating officer, said in Austin this year.
At the Public Utility Commission of Texas, a docket is now open to study points raised in a study funded by Calpine Corp. and NRG — which both generate power — on possible market changes related to price formation.
Commissioner Brandy Marty Marquez remarked during a recent webcast that the body needs to define what issue to address.
"I've had a lot of meetings with a lot of folks over the last year, and I'm like, 'We got low prices and we got a lot of energy. I don't know what to do for ya,'" Marquez said.
Twitter: @edward_klump Email: email@example.com
I’m sitting at the bottom of my garden, reading Paul Kingsnorth’s astonishing new book, Confessions of a Recovering Environmentalist. It’s too late, he says. There is no way we can reverse the environmental changes that will lead to our destruction. And the very idea of progress, of continual forward momentum, is precisely the engine of our destruction. I start to daydream. My thinking slips sideways. I start puzzling about the Progressive Alliance. What is a progressive? And how are they related to the progress Kingsnorth believes has been destroying our planet?
The word “progressive” twists and turns in our political life, constantly shifting its meaning. Tony Blair repurposed the term for those broadly on the left who didn’t want to call themselves socialists. Yet David Cameron was also frequently described that way. Now, however, the term progressive means not Tory. The Progressive Alliance urges tactical voting from Labour, Lib Dem and Green voters, to limit the size of Theresa May’s victory. Being progressive is a big party, and almost everyone is welcome. How about Rick Wakeman, I wonder? After all, he was the poster boy of progressive rock … you remember, interminable keyboard solos by men with long hair and silly silver boots. I know, I’m being slightly facetious. But these days he’s a big donor to the Conservatives. It’s hard to know who progressives would not invite to their party.
And how come the very idea of progress is intuited as something broadly of the left? A hundred years ago in Italy, the so-called futurists were fascists, appropriating the language of technological progress for the far right. “Idealists, workers of thought, unite to show how inspiration and genius walk in step with the progress of the machine, of aircraft, of industry, of trade, of the sciences, of electricity,” gushed the futurist founder Filippo Tommaso Marinetti. Love of progress isn’t just for progressives. Hell, only last week, even Kim Jong-un was lauding his latest missile launch as a “great leap forward”.
The historian Sidney Pollard described the belief in progress as “the assumption that a pattern of change exists in the history of mankind … that it consists in irreversible changes in one direction only, and that this direction is towards improvement”. These days progressives would write humankind. And yes, that’s an improvement. But the idea that history consists of some continual and inevitable elevator towards human betterment is hardly borne out by the environmental catastrophe that our ingenuity and greed are currently visiting upon this planet. Species disappearing, ice melting, topsoil vanishing, choking with carbon emissions – when our forebears spoke breathlessly about future progress, this wasn’t what they had in mind.
Kingsnorth doesn’t romanticise the past. He just points out that seeing the future with rose-tinted spectacles is now more “socially acceptable”, and therefore more dangerous: “The kind of people who are disgusted by an idealized past can often barely contain their enthusiasm for an idealized future.”
In economic terms, progress goes by the name of growth. Ever onwards, ever upwards, calls the money-making machine. And we are its servants, poor Homo economicus. Trapped by debt, we are encouraged by our leaders to run ever faster (they call it productivity) to make and buy more useless and invented stuff – even if that means us borrowing more to do it. The possibility of one or two Green MPs aside, all of those we will elect to parliament next month will believe economic growth to be an unquestionably good thing. No party will ever form a government on the basis that we will need to learn to live with less. A collapsing planet is a niche interest, an inconvenient externality that will one day be resolved by technological progress – that contemporary deus ex machina, good for all occasions.
Ovid had something to say about all this towards the end of the first century BC: “Clever human nature, victim of your inventions, disastrously creative.” That’s the sort of wisdom you don’t need progress to achieve.
Editorial: Gov. Terry McAuliffe takes action on climate change
18 hrs ago
ALEXA WELCH EDLUND
It’s hard to argue with the basic premise behind Gov. Terry McAuliffe’s Tuesday order on greenhouse gas regulation. Carbon dioxide emissions contribute to global warming and need to be curbed, somehow. Is the governor’s approach the best one? That’s a different story.
McAuliffe has directed the Department of Environmental Quality to draw up rules targeting only one source of CO2 emissions, albeit a big one: power plants. What’s more, they haven’t been written yet. So aside from a general sketch that looks vaguely like the Regional Greenhouse Gas Initiative there’s little to praise or condemn.
Not that Republicans have held back. House Speaker Bill Howell accused the governor of overreaching, and another legislator trotted out the shopworn “war on coal” complaint. While it’s true that CO2 regulations fall heavily on coal-fired power generation, that’s because burning coal emits a great deal of CO2. Complaining about that looks a bit like complaining that restrictions on second-hand smoke are a “war on cigarettes.” For similar reasons, it’s wrong to label CO2 regulation an attack on ratepayers. To the contrary, carbon limits are simply an effort to make consumers internalize the actual, but until now unpriced, cost of their fossil-fuel consumption.
The optimal solution is a carbon tax (offset by equivalent tax cuts elsewhere) — the most efficient and market-friendly way to address the negative externalities of energy use. But that approach is highly transparent and less susceptible to manipulation by special-interest lobbying than complicated regulatory schemes. No wonder it never gets any traction.
In his new book, “Captured: The Corporate Infiltration of American Democracy,” Senator Sheldon Whitehouse, Democrat of Rhode Island, rails against the U.S. Supreme Court’s 2010 Citizens United decision, which opened up a floodgate of corporate political contributions, much of it in the form of “dark money” whose origins do not have to be disclosed.
Whitehouse, calling the ruling “a mischief-riddled legal monstrosity,” argues that the resulting meteoric rise in corporate political spending has had a profoundly disabling effect on the democratic process, including when it comes to climate change legislation.
In an interview with Yale Environment 360, Whitehouse contrasts Republican stances on climate change pre- and post-Citizens United. Before the 2010 ruling, “There was a constant steady heartbeat of Republican climate change activity in the Senate,” says Whitehouse. Then, after the ruling, “No piece of carbon dioxide regulation legislation has managed to get a single Republican co-sponsor in the Senate.” The reason? Moderate Republicans fear political retribution from the powerful Koch brothers and their allies in the fossil fuel industry.
Whitehouse, who sits on the Senate Environment and Public Works Committee, maintains that corporate leaders who believe in climate science urgently need to support like-minded Republicans. “One of the reasons [Republicans] exist in this state of fear of the fossil fuel industry artillery is that the corporate leaders who are good on climate have not set up any counter-batteries of their own to provide a little bit of cover … If you’re a Republican senator, you look at fossil fuel-funded front groups that are threatening your elimination as a political figure on the one side, and you look at the other side, and everybody is just sort of standing around looking at the ceiling tiles. Nobody is saying to you, `Look, you got to do the right thing here. I know those guys are going to come after you, but we will have your back.’”
Yale Environment 360: In your book, you write that talking to Republican senators about climate change is like talking with prisoners about escape. So if Republicans are in prison, who is the warden and who gave the warden the power?
Sheldon Whitehouse: The warden is the Koch Brothers’ political apparatus, which at this point is, in many respects, actually bigger and more formidable than that of the Republican Party. And what gave them their power is the five Republican appointees on the Supreme Court who made the terrifically misguided Citizens United decision and allowed the biggest special interests to spend unlimited amounts of money in politics.
e360: What do the Koch Brothers want?
Whitehouse: They want to be able to pollute without having to pay the externality costs, as an economist would say, of their pollution. They would love to be able to compete against other energy sources and have the public pay for the responsibility of the poisoning of our atmosphere and oceans and all the climate consequences that they cause, and not have that baked in the price of their product, which is lousy economics, but really, really good for their finances.
e360: In your book, you compare some Republican stances and legislative activity on climate change before the Citizens United decision and after that decision. Describe that contrast a bit.
Whitehouse: I got elected in 2007, and for all of that year and 2008 and 2009, there was a constant steady heartbeat of Republican climate change activity in the Senate. We didn’t actually get a bill done, but there were numerous versions of legislation floating around. Hearings were held. A lot of bipartisan work was going on, and it is more or less exactly what you would expect the Senate to be doing on a big and difficult issue — working in a bipartisan way to try to find a solution. Then comes January 2010 and the Citizens United decision, which the fossil fuel industry asked for and expected and took instant advantage of. And from that moment forward, no piece of carbon dioxide regulation legislation has managed to get a single Republican co-sponsor in the Senate.
e360: You’ve had a number of Republican colleagues tell you behind closed doors some interesting and quite honest things regarding their support of climate change legislation and climate science. Talk about that.
Whitehouse: Well, if you look at what the three former Republican Treasury secretaries recently said in their report recommending that Republicans get behind putting a price on carbon emissions, one interesting piece of that report was them saying that this was an issue that the Republican Party really needed to get right on because otherwise they risked staining the brand of their party and losing an entire generation of young voters who know that climate denial is nonsense and they aren’t going to put up with it. It’s not just the three Treasury secretaries who feel that way. There are plenty of Republican senators who are just as politically attuned and just as bright as those secretaries. So a lot of them are feeling the same pinch. They’re hearing from their home state universities that are teaching climate change. They’re hearing from fishermen who are concerned about fisheries moving about, farmers who are suffering extraordinary drought and flooding, and in their pine forests out West, they’re seeing the pine beetle munching its way through thousands of square miles of forest.
There’s this building-up of information pouring in and pressure on them and an understanding that they’re really on the wrong side of the issue. There’s no safe passage for them to do anything about it because there stand the sentinels of the fossil fuel industry threatening them with political extermination if they dare to budge, and pointing at [former U.S.] Representative Bob Inglis as the example of a really conservative politician who they just plain took out for the sin of taking an interest in climate legislation.
e360: Yes, Bob Inglis is the poster child in that regard. He was “primaried” in South Carolina and lost to a Tea Party candidate in a runoff.
Whitehouse: I think that Bob is being really brave and is energized on the climate change issue, and he is trying to steer his party towards climate solutions that comport with conservative economic principles, and there are such solutions.
e360: Do you think some Republicans are embarrassed by this science-denial stance that they feel they have to take?
Whitehouse: Absolutely, particularly people I know who’ve been long-time New England Republicans and can remember environmental heroes like Rhode Island’s Republican Senator John Chafee and all the way back to Teddy Roosevelt. The idea that this is a party that has to be sold out to polluting special interests runs really against a lot of the traditional Republican independent, conservation-oriented grain. So yeah, there’s a lot of embarrassment about where the party is — even among Republican senators there’s a lot of embarrassment. They’d love to find a way to get into a place where we could be doing a climate bill. But at this point, the Citizens United decision has given the fossil fuel industry and the Kochs, who are part of the fossil fuel industry, such incredible political artillery that they’re waiting until it’s not a suicide mission.
e360: Recently, 17 Republican members of the House signed a resolution vowing to work constructively to find “economically viable ways to combat climate change,” and they cited the conservative principle “to protect, conserve, and be good stewards of our environment.“ Is this a hopeful sign to you, and do you think we’ll see any of those 17 return to office after the 2018 election?
Whitehouse: I think we probably will. I think there’s an understanding with Speaker [Paul] Ryan and with the big Republican funders that if you’re Representative [Carlos] Curbelo and you represent the Florida Keys, and they’re starting to lose their fresh water, and everybody knows that the reefs are dying, and they’re looking at Army Corps of Engineers flood maps that show that the Keys get overwhelmed by the sea, it’s pretty hard to expect him to continue with climate denial. And I suspect that a détente has been reached where as long as they promise that all they will do is meaningless resolutions, then everybody else will sort of stand back and let them sign this comfortable half-resolution. I don’t think it’s very impressive when you look at the number of actual solutions that are out there that the best that they can do is say, “We think we should be looking for a solution,” and they won’t actually get behind any actual solution.
e360: You close your book by imploring readers to “wake up and get off the couch.” What does that look like on the ground in terms of opposing what you see are these negative consequences of Citizens United on climate change solutions?
Whitehouse: Well, it looks like the hundreds of thousands of people at the climate march in Washington. It looks like scientists beginning to stand up against all the science denial and having their own science march. It looks like the explosion of voter interest in activity specifically on this issue that has occurred since President Trump was elected and started leading this country down a really disgraceful climate path. And I hope that it actually ultimately looks like some of America’s big, good corporations, the Cokes and the Pepsis and the Walmart’s and the Apples and the Googles and Unilevers and so forth doing something about climate change as part of their lobbying priorities in Congress.
At the moment, one of the problems with these Republicans and one of the reasons that they exist in this state of fear of the fossil fuel industry artillery is that the corporate leaders who are good on climate have not set up any counter-batteries of their own to provide a little bit of cover, a little bit of counter pressure. So if you’re a Republican senator, you look at fossil fuel-funded front groups that are threatening your elimination as a political figure on the one side, and you look over at the other side, and everybody is just sort of standing around looking at the ceiling tiles. Nobody is saying to you, “Look, you got to do the right thing here. I know those guys are going to come after you, but we will have your back.”
e360: You represent the state of Rhode Island. If climate change progresses unabated, what does your state look like in the coming decades?
Whitehouse: It looks like an archipelago. The western end of Newport becomes an island as the flooding rises. The towns of Warren and Bristol break off and become islands with new islands of their own. Warwick Neck, which is a big part of the city of Warwick, becomes an island. We probably lose a good deal, if not all, of our coastal ponds since the barrier beaches either get overwhelmed or run back against the backside of the coastal pond. And we have to do something really big to protect Providence. We need basically a dike across the valley there to keep downtown Providence from being overwhelmed. So it’s going to be a really big deal in a state whose map has looked more or less the same for thousands and thousands of years. In the next 80 years we might have to redraw all those maps into an archipelago of new islands carved out by rising seas.
But to close on a more enthusiastic note, I really do think that public pressure and scientific pressure and the emerging facts on this issue, at some point, are going to break the back of the fossil fuel political apparatus, and that cannot come soon enough.
Diane Toomey is an award-winning public radio journalist who has worked at Marketplace, the World Vision Report, and Living on Earth, where she was the science editor. Her reporting has won numerous awards, including the American Institute of Biological Sciences' Media Award. She is a regular contributor to Yale e360 and currently is an associate researcher at the PBS science show NOVA.
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